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Results were driven by higher revenues on the back of increased originations. However, an increase in costs, lower net finance and other income, and deteriorated credit quality perhaps disappointed investors. As a result, the stock lost 3.7% after the announcement.

Net income came in at $265 million, down 6.5% from the prior-year quarter. The company recorded a one-time tax benefit of $14 million, or 4 cents per share for the reported quarter.

Revenue Growth Partially Offset by Rise in Costs

Total revenue amounted to $1.69 billion, up 0.6% year over year.

Net finance and other interest income totaled $1.14 billion, down 5.3% year over year. The decline was primarily due to a combination of lower retail installment contract (RIC) balances and higher cost of funds stemming from a rise in benchmark rates.

Other income decreased by 35% from the prior-year quarter to $24.4 million.

Operating expenses increased 3.7% year over year to $282 million. Constant investment in compliance and control functions led to the rise.

Santander Consumer’s credit quality deteriorated in the quarter. Provision for credit losses increased 1.7% year over year to $521 million. Further, the total net charge-offs ratio increased from 6% to 7.5% for the quarter ended Jun 30, 2017. Also, end-of-period delinquency ratio was 4.7%, up from 4.2% in the year-ago period.

Capital and Profitability Ratios

As of Jun 30, 2017, Santander Consumer’s Common Equity Tier 1 capital ratio came in at 14.3%, rising from 12.6% as of Jun 30, 2016.

Return on average assets declined to 2.7% as of Jun 30, 2017 from 3% as of Jun 30, 2016. Also, return on average equity was down to 19.1% from 24% recorded in the year-ago quarter.

Our Take

We believe that with the improvement in disposable income and consumer spending, Santander Consumer will primarily benefit from a rise in auto finance. However, a rise in provision for credit losses will restrict bottom-line growth.

The results were attributable to higher revenues and easing margin pressure. Also, the quarter witnessed a rise in loan balance. However, an increase in provisions and rising expenses acted as headwinds.

Sallie Mae (SLM - Free Report) reported second-quarter 2017 core earnings of 16 cents per share, in line with the Zacks Consensus Estimate. The bottom line however increased 33% from the prior-year quarter.

Earnings growth was supported by an increase in net interest income. The private education loan portfolio and deposits grew considerably. However, these positives were offset by lower non-interest income, higher expenses and a rise in provision for loan losses.

Results benefited from an increase in total net revenues, partially offset by higher expenses. Capital ratios remained unchanged on a year-over-year basis in the quarter. However, higher provision for loan losses was a headwind.

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